How Refunds, Chargebacks, and Returns Impact Ecommerce Brands' Bottom Line and Trust in Marketplaces

Key takeaways for ecommerce brands:

1. A new study reveals that the top three factors that erode trust in marketplaces are poor product quality (46%), unreliable or dishonest sellers (38%), and refund or return issues (36%).

2. Refunds, chargebacks, and returns policies impact consumers throughout their shopping experience and can interfere with achieving financial clarity.

3. Understanding and carefully tracking refunds, chargebacks, and returns on the bookkeeping level allows brands to answer a crucial question: after these subtractions, how much cash from sales do you have left to cover expenses?

***************************************************************************************************************

Selling on Amazon/Etsy/eBay/any other marketplace vs. on your own brand website is the subject of many Reddit threads. Most sellers on Reddit are quick to point out that the two options are not mutually exclusive and recommend doing both. The juicy stuff, however, comes out only when someone asks something along the lines of: if you had to pick one over the other, which would it be?

One of the more popular answers, at least based on the number of upvotes, appeared in a thread from about a year ago. “If I could only choose one, I'd choose my site,” wrote a seller who uses both channels. “Amazon is a pain. It's harder and harder to sell successfully and ads are absolutely necessary now, which often digs deep into your profit margin. Use any sales you get on Amazon to fuel the marketing for your site.”

According to a new study by ChannelEngine, a marketplace integration and management platform, this may not be the best advice. Titled “Marketplace Shopping Behavior Report 2025,” the study draws on the insights of 4,500 online shoppers across the US, the UK, France, Germany, and the Netherlands to explore consumer behavior regarding marketplace adoption, usage, and preferences. 

Key findings include:

• 63% of consumers prefer purchasing on marketplaces than on brand-owned websites.

• About 1 in 5 shoppers said they browse marketplaces weekly.
  
  
• Marketplaces have replaced search engines as consumers’ first step in the purchase journey: for 47% of shoppers, product discovery starts on marketplaces rather than search engines like Google (24%).
  

• Health & beauty, home & living, and clothing are the most browsed categories. Shoppers browse 2.2 marketplaces on average before buying home & living products – and almost three (2.9) before making a clothing or footwear purchase. 

• Over half of shoppers (56%) make unplanned purchases on marketplaces at least sometimes, with 13% doing it often.

• 79% of respondents are confident of getting the best deals on marketplaces.

Understanding How Refunds and Chargebacks Impact Your Brand

“Marketplaces have surpassed brand websites and search engines like Google as the primary destination for product discovery,” said Jorrit Steinz, CEO of ChannelEngine. “Consumers now shop across so many marketplaces that brands and retailers must embrace a multichannel strategy to stay competitive – or risk being left behind.”

The only thing brand websites have going for them, per ChannelEngine's study, is their dependability: consumers who opt for brand websites rather than online marketplaces rate them highly for trustworthiness (46%) and reliability (41%). And correspondingly, the top three factors that erode trust in marketplaces are poor product quality (46%), unreliable or dishonest sellers (38%), and refund or return issues (36%).

Refunds and returns are sensitive issues in the ecommerce space. For one, return policies and refund expectations impact consumers throughout their shopping experience; recent research by the National Retail Federation (NRF) found that 76% of consumers consider free returns a key factor in deciding where to shop, and 67% say a negative return experience would discourage them from shopping with a retailer again. 

Another challenge – just as important – refunds and returns pose for brand founders is trying to get financial clarity. Brands, said serial entrepreneur Jason Wong, the founder of multi-million dollar ecommerce businesses such as Doe Lashes and Holy Meme Bible, “often overestimate their revenue, forgetting to account for (things like) refunds and exchanges that can eat into their bottom line. Always focus on net revenue, not gross.”  

Breaking Down the Numbers: Your Journey to the Bottom Line

Net revenue – also known as net sales – directly impacts the financial health of your business. It subtracts discounts, promotions, refunds, chargebacks, and returns from gross sales, posing a crucial question to brand operators: after these subtractions, how much cash from sales do you have left to cover expenses?

From an ecommerce accounting perspective, refunds and chargebacks play a particularly important role. Chargebacks happen when a customer asks their credit card issuer to reverse a transaction and return funds used in a purchase. Refunds, on the other hand, occur when the business returns funds directly to the customer. There are three types of refunds:

• Return of money for overpayment or overcharging
• Return of money for returned products
• Return of money for a canceled transaction

For ecommerce bookkeeping purposes, sales should be recorded after an order, even if you know the money will have to be returned to the customer at a later point. Refunds and chargebacks should be booked separately.

Ultimately, effective management of refunds and returns requires efforts on two fronts. On the customer retention front, brands selling on marketplaces need to ensure their return and refund policies meet their customers' expectations. On the ecommerce accounting front, founders must drill down beyond gross sales, carefully tracking refunds and chargebacks on their way to true business profitability.